Goldman Sachs has adjusted its outlook for European equities and reworked sector recommendations in response to rising energy prices and a softer growth trajectory, according to a new note from the firm's strategists.
Commodities and macro revisions
The bank's commodities team increased their price assumptions, setting oil at an average of $77 per barrel in 2026 and gas at an average of 46 EUR/MWh. Those higher energy forecasts have prompted Goldman Sachs economists to revise their U.S. growth expectations for 2026, cutting their fourth-quarter-to-fourth-quarter GDP projection by 0.3 percentage points to 2.2% and forecasting full-year growth of 2.6%.
As inflation expectations rose alongside the commodities revisions, the firm pushed back the timing of its anticipated Federal Reserve easing. The initial Fed rate cut that had been expected in June is now projected for September, with a subsequent cut in December, leaving the bank's terminal Fed funds rate at 3-3.25%.
European index targets and regional shifts
On Europe, Goldman maintained an overall STOXX Europe index trajectory that is largely unchanged in headline terms, keeping targets of 605, 615 and 625 at three-, six- and 12-month horizons respectively. Those levels imply limited upside of roughly 1% to 4% from current levels.
However, the bank adjusted its regional views within Europe. It lowered its forecast for the Euro area benchmark while raising its outlook for the U.K. market. The strategists attribute this rebalancing to the FTSE 100's relatively defensive sector composition and stronger value characteristics, while the Euro area index carries greater cyclical exposure.
Sector rotation and specific positioning
At the sector level, Goldman said portfolios should tilt modestly more toward defensive areas and reduce exposure to industries that are vulnerable to the recent spike in energy costs. Among the specific moves, Construction & Building Materials was raised to Overweight. The firm also added both its Renewables basket and capital-intensive "HALO" companies to Overweight status.
Energy was moved to Neutral from a lower stance, Financial Services was reduced to Neutral, and Media was downgraded to Underweight. Autos and Chemicals remain Underweight, with the strategists citing competitive pressure, notably from China, as a constraint on those sectors.
Corporate earnings outlook
Despite the downgraded macro profile, the strategists suggested corporate earnings may show resilience. They noted that earnings per share estimates could outpace real GDP, arguing that higher energy profits, weaker currencies and elevated inflation can bolster nominal earnings even if underlying economic growth softens.
These adjustments reflect an effort to rebalance portfolios for a backdrop of higher commodity prices and a more cautious growth outlook, emphasizing defensive exposures and select cyclicals that can benefit from stronger nominal earnings dynamics.